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Page 1

FOREIGN INDUSTRIAL TARGETING
AND ITS EFFECTS ON U.S. INDUSTRIES
PHASE I: JAPAN

Report to the Subcommittee on Trade,
Committee on Ways and Means,
U.S. House of Representatives on
Investigation No. 332-162
Under Section 332(b)
of the Tariff Act of 1930

USITC PUBLICATION 1437

OCTOBER 1983

United States International Trade Commission I Washington, D.C. 20436

Page 2

UNITED STATES INTERNATIONAL TRADE COMMISSION

COMMISSIONERS

Alfred E. Eckes, Chairman

Paula Stern

Veronica A. Haggart

Seeley G. Lodwick

Kenneth R. Mason, Secretary to the Commission

This report was prepared principally by

John W. Suomela, Project Leader
William Cunningham
Edward Easton
Henry McFarland
Donald Rousslang
Kim Skidmore

With the assistance of various commodity analysts
of the Office of Industries

Office of Economics
John W. Suomela, Director

,.
i

Address all communicatipns to

Office of the Secretary

United States International Trade Commission

Washington, D.C. 20436

Page 195

187

U.S. exports

U.S. exports· of drugs and related products increased 59 percent during
1977-82. from $1.5 billion in 1977 to $2.3 billion in 1982. Principal U.S.
export markets in 1982 were Japan (21 percent)• France (8 percent). Canada "< 7
percent). West Germany (6 percent). and Belgium (5 percent). · The United
States had a positive trade balance in these products in 1982. with U.S.
exports approximately double U.S. imports. Exports accounted for about 9
percent of estimated U.S. shipments in 1982. United States exports to world
markets increased more rapidly than did Japanese exports to world markets
during 1972-81. The United States also had a favorable trade balance with
Japan and. in 1982. U.S. imports from JJpan were $110 million whereas U.S.
exports to Japan were $495 million. The United States maintained a favorable
trade balance with Japan during 1972-82.

The United States has maintained a· positive growth in the exports of
drugs and related products. because many U~S. production facilities are large
enough to supply world markets in addition to supplying the domestic market.
Another factor influencing the continued export growth is that most large U.S.
drug firms have established impressive reputations as suppliers of safe and
effective pharmaceutical preparations. Additionally. many multinational firms
ship drugs in bulk form to the United States. and then export pharmaceutical
preparations made from the bulk drugs.

Japanese exports

As discussed in the section on international markets. Japanese export
data are not directly comparable with official U.S. import data compiled by
the Department of Commerce, owing to substantial differences in the U.S.
classification systems, the Standard International Trade Classification
system, and the Customs Cooperation Council Nomenclature (CCCH) system used by
Japan. Nevertheless. the SITC data are relied on for the examination of
trends. even though these data do not include all trade in bulk drugs. the
predominant form in which drugs and related products are imported into the
United States. These data are believed to reflect histori~al trends in total
trade.

Oti the basis of SITC data. the United States was Japan's largest. (28
percent), export market for drugs and related products in 1981. followed bJ
West Germany, (9 percent); Hong Kong, (5 percent); France. (5 percent); the
Republic of Korea. (4 percent); Belgium. (3 percent); Denmark. (3 percent);
and Switzerland (3 percent). These statistics show that Japanese exports of
drugs and related products to the United States increased 253 percent during
1972-77 and further increased 101 percent during 1977-81. Total Japanese
exports to all markets of these products increased 114 percent during 1972-77
and 83 percent during 1977-81.

The Japanese have been highly competitive in certain product markets for
bulk drugs. For example. Japan was the principal source of U.S. imports of
vitamins during 1977-82. Indeed. in 1982, imports from Japan accounted for
almost 50 percent of total U.S. impo~ts of vitamins.

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188

Conditions of competition in international markets

The United States is currently in a favorable competitive position in
terms of raw material cost and availability of organic chemicals used to
produce drugs and related products. Sti 11, in general, all major
industrialized countries have access to the requisite raw materials used to
produce drugs and related products. However, in most instances, raw material
cost is not the principal factor in determining the location of manufacturing
facilities. More important factors are proximity to major markets, compliance
with government drug regulations. tax advantages and other inducements for
capital investments, skill levels of available workers, and corporate
structure.

Furthermore, basic and process technologies are both important for a
competitive edge. The high-profit margins of the drug industry, compared with
other segments of the chemical industry. are directly related to a constant
flow of significant drug discoveries. An individual drug that is a
significant new therapeutic development can be inunensely profitable for a drug
firm, though to discover, test, produce, and market the new drug requires
large expenditures. For these reasons, major U.S. drug firms employ some of
the· most advanced "state-of-the-art" technology in the world. As previously
mentioned, these leading firms are multinational corporations, and there is
considerable technology transfer between the parent company and its foreign
subsidiaries. Advanced drug technology, therefore, is not the exclusive
purview of U.S. firms, but is generally available to most major competitors.
In 1982. for example, West Germany ranked first in new drug introduction;
Spain, second; Italy, third; and Japan, sixth. The United States was not
among the top 10 countries on the basis of new drug introductions in 1982. !I

Reportedly, the Japanese Government has been encouraging Japanese
pharmaceutical firms to become more aggressive in marketing their products in
foreign markets by lowering the price of Japanese drugs. At the same time,
foreign companies were encouraged to market their drugs in Japan in order to
increase competition. In addition, Japanese firms have formed joint ventures
and licensing agreements with numerous established multinational drug firms to
gain inexpensive access to world markets and to gain international marketing
experience. ~/

l/ "Ciba-Geigy ousts Hoechst from top of drug launch league table," European
Chemical News, July 18, 1983, p. 19.
ll Urang, loc. cit., pp. 9-14.

Page 390

UNITED STATES

INTERNATIONAL TRADE COMMISSION
WASHINGTON. O.C. 20436

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